In the tables that follow you will find consolidated balance sheets for the commercial banking system and the 12 Federal Reserve Banks. Use columns 1 through 3 to Indicate how the balance sheets would read after each of transactions a to cis completed. Do not cumulate your answers, that is, analyze each transaction separately, starting in each case from the numbers provided. All accounts are In billions of dollars a. A decline in the discount rate prompts commercial banks to borrow an additional $1 billion from the Federal Reserve Banks. Show the new balance sheet numbers in column 1 of each table. b. The Federal Reserve Banks sell $3 billion in securities to members of the public, who pay for the bonds with checks. Show the new balance sheet numbers in column 2 of each table. c. The Federal Reserve Banks buy $2 billion of securities from commercial banks. Show the new balance sheet numbers in column 3 of each table. Instructions: Enter your answers as whole numbers in both tables below. Answer is complete but not entirely correct. Consolidated Balance Sheet: All Commercial Banks 1 2 3 Assets: Reserves Securities Loans $33 60 60 $ $ $ 37 xls 60 Is 60S 27 XS 60s 603 38 55 x 60 Liabilities and net worth: Checkable deposits Loans from the Federal Reserve Banks $150 Is 150 s 150 144 3s OO 3 $ 7 x $ Answer is complete but not entirely correct. Consolidated Balance Sheet: 12 Federal Reserve Banks 1 2 3 Assets: Securities $60 IS 60$ 545 Loans to commercial banks 3 IS 7 S 3 65 3 Liabilities and net worth: Reserves of commercial banks Treasury deposits $33 $ 37 x 3 27 xls 38 3 $ 3s 3s 3 Federal Reserve Notes 27 $ 27 S 27 27 d. Now review each of the above three transactions, asking yourself these three questions: (1) What change, if any, took place in the money supply as a direct and immediate result of each transaction? (2) What increase or decrease in the commercial banks' reserves took place in each transaction? (3) Assuming o reserve ratio of 20 percent what change in the money-creating potential of the commercial banking system occurred as a result of each transaction? Answer is complete but not entirely correct. Transaction a: 1. The money supply did not change 2. Reserves Increased from $33 bition to billion 37 3. Money-creating potential increased by bition Transaction b: 1. The money supply decreased by $6 bilion 2. Reserves decreased from $33 bilion to 27 blon 3. Money-creating potential decreased by 30 bon Transaction ci 1. The money supply did not change increased 2. Reserves from 333 bilion to blon 30 3 Money.creating polential increased beton In the tables that follow you will find consolidated balance sheets for the commercial banking system and the 12 Federal Reserve Banks. Use columns 1 through 3 to Indicate how the balance sheets would read after each of transactions a to cis completed. Do not cumulate your answers, that is, analyze each transaction separately, starting in each case from the numbers provided. All accounts are In billions of dollars a. A decline in the discount rate prompts commercial banks to borrow an additional $1 billion from the Federal Reserve Banks. Show the new balance sheet numbers in column 1 of each table. b. The Federal Reserve Banks sell $3 billion in securities to members of the public, who pay for the bonds with checks. Show the new balance sheet numbers in column 2 of each table. c. The Federal Reserve Banks buy $2 billion of securities from commercial banks. Show the new balance sheet numbers in column 3 of each table. Instructions: Enter your answers as whole numbers in both tables below. Answer is complete but not entirely correct. Consolidated Balance Sheet: All Commercial Banks 1 2 3 Assets: Reserves Securities Loans $33 60 60 $ $ $ 37 xls 60 Is 60S 27 XS 60s 603 38 55 x 60 Liabilities and net worth: Checkable deposits Loans from the Federal Reserve Banks $150 Is 150 s 150 144 3s OO 3 $ 7 x $ Answer is complete but not entirely correct. Consolidated Balance Sheet: 12 Federal Reserve Banks 1 2 3 Assets: Securities $60 IS 60$ 545 Loans to commercial banks 3 IS 7 S 3 65 3 Liabilities and net worth: Reserves of commercial banks Treasury deposits $33 $ 37 x 3 27 xls 38 3 $ 3s 3s 3 Federal Reserve Notes 27 $ 27 S 27 27 d. Now review each of the above three transactions, asking yourself these three questions: (1) What change, if any, took place in the money supply as a direct and immediate result of each transaction? (2) What increase or decrease in the commercial banks' reserves took place in each transaction? (3) Assuming o reserve ratio of 20 percent what change in the money-creating potential of the commercial banking system occurred as a result of each transaction? Answer is complete but not entirely correct. Transaction a: 1. The money supply did not change 2. Reserves Increased from $33 bition to billion 37 3. Money-creating potential increased by bition Transaction b: 1. The money supply decreased by $6 bilion 2. Reserves decreased from $33 bilion to 27 blon 3. Money-creating potential decreased by 30 bon Transaction ci 1. The money supply did not change increased 2. Reserves from 333 bilion to blon 30 3 Money.creating polential increased beton
